Increasing interest, declining inflows

: Japan and India are two of the largest democracies in Asia, sharing a commitment to the rule of law and respect for human rights. They are also leading economies in Asia.

In recent years, the two countries have strengthened bilateral ties through new initiatives and programmes ranging from economic and cultural linkages to defence and security. Japan gives 30% of its overseas development assistance to India and is, even in this period of global economic downturn, committing more than $4 billion to the Delhi-Mumbai Industrial Corridor. But our economic relationship is still far below its potential. Two-way trade ($10.18 billion for 2007-08) has risen in the last five years, but still remains considerably low when compared with the China-Japan trade or even the India-China trade (respectively, $237.193 and $37.931 billion in 2007-08). Similarly, Japan’s foreign direct investment in India for April-March 2008 ($0.82 billion) ill compares to its investment in smaller Asian countries such as Vietnam ($0.41 billion), not to mention China ($1.9 billion).

According to a recent survey conducted by the Japan Bank for International Cooperation, India has become the most favoured investment destination for long-term Japanese investments. While nearly 70% of Japanese manufacturers regarded India as the most attractive country to do business in over the next 10 years or so, only 67% preferred China. Russia came third, with a 37% rating, followed by Vietnam at 28%.

India’s robust economic growth in recent years has not gone unnoticed on the Japanese radar. It’s now the sixth-largest FDI facilitator in India. Although Japan’s contribution to India’s FDI inflow was only 4.29% between 1991-2007, the quantum of investment is rising steadily, especially in the Indian financial market.

In 2006-07, share of Japan in the total inflows was 0.54%. Next year, it increased to 3.32% but dwindled to 1.07% in 2008-09. In fact, over the years, share of Japan in total inflows of India has been declining. This can be attributed to several factors including the failure of the Japanese investor to understand the Indian consumer.

The analysis of sector wise inflows from Japan shows that automobile sector has received the maximum FDI during 2000-07, constituting nearly 41% of the total FDI inflows from Japan. Other favoured sectors include electrical equipments, trading, services sector and telecommunications. These five sectors together constitute nearly 72% of the total FDI inflows from Japan.

As far as technology transfers are concerned,...